SONIA: Call spread

.Tsys futures still bid in late morning trade, but well off early session highs as market continues to weigh impact of reversal nearly all measures from UK 23 September mini-budget this morning. UK Gilt rally where "UK 10Y INFLATION-LINKED YIELDS FALL 63BPS, SET FOR RECORD DROP" Bbg.

• No obvious headline driver for reversal of Tsy support over last couple hours heading into the London close. Any react to weaker-than-expected headline Empire number (-9.1 vs -4.3 survey and -1.5 prior) lost in the early morning shuffle.
• Data focus turns to IP/Cap-U, Net TIC flows on tap Tuesday.
  
  
• US Tsy auctions: $57B 13W, $45B 26W bill auctions at 1130ET today, no supply Tuesday. No scheduled Fed speakers until Tuesday.

• Despite lower gas prices, consumer inflation expectations for 1Y and 2Y ahead continued to edge up (1Y 7.1%, 2y 5.2%) in the Q3 survey conducted Aug 2-23 with follow-up interviews Sept.
• The 5Y ahead meanwhile fell back into its recent range as it pulled back from 4% (highest since 2Q18) to 3.44%, a move consistent with breakevens sitting close to pre-Ukraine war levels - chart.
• The latter will be of some comfort for the BoC but further elevated short-term expectations and the risk they become more entrenched gives scope for the BoC to hang a hawkish argument on.

Further to our note on Cable rising 2.3% today - GBPUSD is set for its biggest 1-day % rise since Mar 26th, 2020, and before that seen on only a few occasions (Jan 17th 2017; Jun 20th 2016; a couple of times in 2008). See chart:

Source: BBG